The Coronavirus and Your Portfolio


Coronavirus

Wow, what a week. Global equity markets sold off in dramatic fashion. The S&P 500 closed down -11% and the Dow -12%.

Being an investor this past week was not fun, and it’s okay to admit as much. Nobody enjoys seeing stocks fall this way. Going into this New Year, many stock markets around the world were trading near all-time highs, including major indexes in the US, Canada, UK, and Australia. In fact, since the end of The Great Recession in 2009, many stock markets around the world have seen a doubling or tripling in price. In the US, for example, the S&P 500 index saw its price increase from under 700 in March 2009 to over 3,300 this month. 

Of course, markets don’t go up forever. Sometimes, they just flatline for a while as economic malaise cycles through. Other times, they see violent drops that make big headlines, like the “Black Monday” stock market crash on October 19, 1987, that was felt around the world.  

Today, the coronavirus (COVID-19) is triggering a steep stock market selloff around the world. Fear has gripped the global marketplace as we process the full impact of the spread of this virus.

Warren Buffett famously wrote, “It’s only when the tide goes out that you learn who’s been swimming naked.” Well, the tide is going out. The good news is, as a steward of my client’s financial well-being, we prepare for situations like this even though we never know what may trigger them.

Fear is a Natural Reaction

We are all human, and we are hardwired to react in a certain way when we are threatened. Ten thousand years ago, if a lion were chasing us, our brain would’ve told us to run away and to separate ourselves from what was threatening us. 

The same is true when we consider the coronavirus and out portfolios. Today, we are not only feeling threatened by the idea that a virus can cause us bodily harm, but also the market reaction that can cause us financial loss. 

We cannot directly control the full impact of the coronavirus. However, your reaction to the financial markets is something within your control. I know it’s no fun seeing your portfolio drop. But we also know market volatility is normal and it SHOULD BE expected. Markets do not go up in a straight line with no occasional pullbacks. The key is to zoom out and look at the long-term big picture. 

The 5 Bull Oak investment portfolios are designed to support your long-term objectives, not today’s needs. Financial markets react to shocks to the system, and we are seeing one now. How deep this reaction will be is unknown. 

In situations like this, my job is to bring perspective, to help you see that swift market drops are not unusual. And yes, the headlines are scary, and they can bring our “fear” instincts to the surface. The best response is to acknowledge what you’re feeling, reach out to us if that would be helpful, and have confidence that we are on top of the situation.

I have no idea how bad the situation will when we will be able to manage the circumstances better. Will the markets fall another 10% next? Or will the markets begin to make a sharp recovery? Nobody knows. 

Though, I will say that last week was extremely rare. The last time we saw a week this bad was in 2008, during the midst of the financial crisis. So, if there is any silver lining here, congratulate yourself for successfully weathering a sharp an unexpected storm. It rarely get’s worse than this. 

Further, maintain a long-term viewpoint here. Yes, the S&P 500 just experienced a sharp selloff. However, is your timeframe 1 week or even one year? No. Chances are your investment time horizon is 10 years, 20 years, 30 years, or even longer. This past week should have very little bearing when regarding your long-term goals.

reasons to sellMy thoughts on the coronavirus

Let me first say that I am not a medical professional, nor do I have a college degree in virology. As such, I am not going to pretend that I am one. I have, however, been consuming A LOT of content relating to the spread of the coronavirus, so here are my thoughts on the matter. 

As I write this on Saturday, February 29, 2020, there are 86K confirmed cases globally, 2,942 deaths, and 39,802 recovered. This assumes a ~3.4% mortality rate among all demographic groups. 

total cases and deaths
Source: https://www.worldometers.info/coronavirus/
  • Wuhan Novel Coronavirus – 3.4% mortality rate
  • SARS – 9.6% mortality rate
  • MERS – 34% mortality rate
  • Swine Flu – 0.02% mortality rate

For comparison, the case fatality rate for the seasonal flu in the US is less than 0.1%, even though the normal flu kills 290K-650K worldwide every year. 

But here is where it gets fascinating. If you are under 50 years old, your mortality rate after catching COVID-19 is only 0.2-0.4%. For those that are under the age of nine, there have been no fatalities. 

mortality rate chart
Source: https://www.worldometers.info/coronavirus/

The fatality rate isn’t very high until you reach the age of 70 (8%) and the age of 80 (14.8% mortality). These figures imply a severe health concern. However, mortality at those ages is high from nearly any infection, not just this one in particular.

Furthermore, the number of daily deaths has been declining. This is good news. 

Total Deaths of Novel Coronavirus (2019-nCoV)

daily deaths coronavirus

coronavirus growth factor
Source: https://www.worldometers.info/coronavirus/

Chances are good that a vaccine will not be available to the general pulbic this year. However, if the coronavirus behaves like the influenza virus, the number of cases and deaths will slow as we enter into spring and summer. Hopefully, by early next year as the coronavirus springs back up again, we will have vaccines ready for us all.

What to do now?

  1. Wash your hands
  2. Get the flu shot, if you haven’t already
  3. It’s okay to prepare and plan. Buy some extra food, if you want, but please don’t hoard. At this point, panic will only cause more pain than COVID-19 ever will. More information here: https://www.cdc.gov/coronavirus/2019-ncov/about/prevention-treatment.html
  4. Continue to live your life. Please turn off the news, go to the beach with your family (it’s a beautiful weekend here in SoCal), play with your kids, and spend some money to support local businesses.
  5. Maintain your long-term goals and, if you can, take advantage of the recent selloff. 
  6. If you have debt, whether it is a mortgage or a commercial loan, consider refinancing. Long-term bond rates are at historic lows.

 

To quote the W.H.O., “Most people who become infected (with the coronavirus) experience mild illness and recover.” Remember that CNN, CNBC, Fox News, etc. all exist to keep your attention glued to their station. Many of these media outlets have a negative bias (which I talked about here: https://bulloakcapital.com/is-cnbc-biased/). Turn off the TV, log out of Facebook and Twitter, and keep a more balanced view of the world.

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